pptch1-7

Copyright 2011 Pearson Education, Inc.

E-commerce

Kenneth C. Laudon

Carol Guercio Traver

business. technology. society.

seventh edition

E-commerce: business. technology. society.


Chapter 1: The Revolution Is Just Beginning

Copyright 2007 Pearson Education, Inc. Slide 1-2

Chapter 1

The Revolution Is Just Beginning


Facebook: The New Face of E-Commerce?

Class Discussion

Do you use Facebook, and if so, how often? What has the experience been like?

Have you purchased anything based on an advertisement on Facebook or by using a link provided by a friend?

Are you concerned about the privacy of the information you have posted on Facebook?

Slide 1-3


E-commerce Trends 2010-2011

Social networking continues to grow

Social e-commerce platform emerges

Online consumer sales return to growth

Mobile computing begins to rival PC

Explosive growth in online video viewing

Continued privacy and security concerns

Slide 1-4


The First 30 Seconds

First 16 years of e-commerce

Just the beginning

Rapid growth and change

Technologies continue to evolve at exponential rates

Disruptive business change

New opportunities

Slide 1-5


What is E-commerce?

Use of Internet and Web to transact business

More formally:

Digitally enabled commercial transactions between and among organizations and individuals

Slide 1-6


E-commerce vs. E-business

E-business:

Digital enablement of transactions and processes within a firm, involving information systems under firms control

Does not include commercial transactions involving an exchange of value across organizational boundaries

Slide 1-7


Why Study E-commerce?

E-commerce technology is different, more powerful than previous technologies

E-commerce bringing fundamental changes to commerce

Traditional commerce: Passive consumer

Sales-force driven

Fixed prices

Information asymmetry

Slide 1-8


Unique Features of E-commerce Technology

1. Ubiquity

2. Global reach

3. Universal standards

4. Information richness

5. Interactivity

6. Information density

7. Personalization/customization

8. Social technology

Slide 1-9


Web 2.0

Technologies that allow users to:

Create and share content, preferences, bookmarks, and online personas

Participate in virtual lives

Build online communities

E.g. Twitter, YouTube, Facebook, Second Life, Wikipedia, Digg

Slide 1-10


Types of E-commerce

Classified by market relationship

Business-to-Consumer (B2C)

Business-to-Business (B2B)

Consumer-to-Consumer (C2C)

Classified by technology used

Peer-to-Peer (P2P)

Mobile commerce (M-commerce)

Slide 1-11


The Internet

Worldwide network of computer networks built on common standards

Created in late 1960s

Services include the Web, e-mail, file transfers, etc.

Can measure growth by looking at number of

Internet hosts with domain names

Slide 1-12


The Growth of the Internet, Measured by Number of Internet Hosts with Domain Names Figure 1.3, Page 23

Slide 1-13

SOURCE: Internet Systems Consortium,

Inc. , 2010.


The Web

Most popular Internet service

Developed in early 1990s

Provides access to Web pages

HTML documents that may include text, graphics, animations, music, videos

Web content has grown exponentially

Google indexes between 75 100 billion pages

Slide 1-14


Insight on Technology:

Spider Webs, Bow Ties, Scale-Free Networks, and the Deep Web

Class Discussion

What is the small world theory of the Web?

What is the significance of the bow-tie form of the Web?

Why does Barabasi call the Web a scale-free network with very connected super nodes?

Slide 1-15


Origins & Growth of E-commerce

Precursors: Baxter Healthcare

Electronic Data Interchange (EDI)

French Minitel (1980s videotex system)

None had functionality of Internet

1995: Beginning of e-commerce First sales of banner advertisements

E-commerce fastest growing form of commerce in United States

Slide 1-16


The Growth of B2C E-commerce Figure 1.4, Page 25

Slide 1-17

SOURCES: Based on data from eMarketer, Inc., 2010; authors estimates.


The Growth of B2B E-commerce Figure 1.5, Page 28

Slide 1-18

SOURCES: Based on data from U.S. Census Bureau, 2010; authors estimates.


Technology and E-commerce in Perspective

The Internet and Web: Just two of a long list of technologies that have greatly changed commerce

Automobiles

Radio

E-commerce growth will eventually cap as it confronts its own fundamental limitations.

Slide 1-19


Potential Limitations on the Growth of B2C E-commerce

Expensive technology

Sophisticated skill set

Persistent cultural attraction of physical markets and traditional shopping experiences

Persistent global inequality limiting access to telephones and computers

Saturation and ceiling effects Slide 1-20


E-commerce: A Brief History

1995-2000: Innovation Key concepts developed

Dot-coms; heavy venture capital investment

2001-2006: Consolidation Emphasis on business-driven approach

2006-Present: Reinvention Extension of technologies

New models based on user-generated content, social networks, services

Slide 1-21


Early Visions of E-commerce

Computer scientists: Inexpensive, universal communications and computing

environment accessible by all

Economists: Nearly perfect competitive market and friction-free

commerce

Lowered search costs, disintermediation, price transparency, elimination of unfair competitive advantage

Entrepreneurs: Extraordinary opportunity to earn far above normal

returns on investment first mover advantage Slide 1-22


Insight on Business

Noodlenomics Guides Internet Investment in 2010

Class Discussion

What explains the rapid growth in private investment in e-commerce firms in the period 19982000? Was this investment irrational?

What was the effect of the big bust of March 2000 on e-commerce investment?

What is the value to investors of a company such as YouTube which has yet to show profitability?

Why do you think investors today would be interested in investing in or purchasing e-commerce companies? Would you invest in an e-commerce company today?

Slide 1-23


Assessing E-commerce

Many early visions not fulfilled

Friction-free commerce

Consumers less price sensitive

Considerable price dispersion

Perfect competition

Information asymmetries persist

Disintermediation

First mover advantage

Fast-followers often overtake first movers

Slide 1-24


Predictions for the Future

Technology will propagate through all commercial activity.

Prices will rise to cover the real cost of doing business.

E-commerce margins and profits will rise to levels more typical of all retailers.

Cast of players will change. Traditional Fortune 500 companies will play dominant role.

New startup ventures will emerge with new products, services.

Number of successful pure online stores will remain smaller than integrated offline/online stores.

Regulatory activity worldwide will grow.

Cost of energy will have an influence.

Slide 1-25


Understanding E-commerce: Organizing Themes

Technology: Development and mastery of digital computing and

communications technology

Business: New technologies present businesses with new ways of

organizing production and transacting business

Society: Intellectual property, individual privacy, public welfare

policy

Slide 1-26


The Internet and the Evolution of Corporate Computing Figure 1.9, Page 44

Slide 1-27


Insight on Society

Who Really Cares About Online Privacy? Class Discussion

What techniques of privacy invasion are described in the case?

Which of these techniques is the most privacy-invading? Why?

Is e-commerce any different than traditional markets with respect to privacy? Dont merchants always want to know their customer?

How do you protect your privacy on the Web?

Slide 1-28


Academic Disciplines Concerned with E-commerce

Technical approach Computer science

Management science

Information systems

Behavioral approach Information systems

Economics

Marketing

Management

Finance/accounting

Sociology

Slide 1-29


2. Revenue Model

How will the firm earn revenue, generate profits, and produce a superior return on

invested capital?

Major types:

Advertising revenue model

Subscription revenue model

Transaction fee revenue model

Sales revenue model

Affiliate revenue model

Slide 2-30


3. Market Opportunity

What marketspace do you intend to serve and what is its size?

Marketspace: Area of actual or potential commercial value in which company intends to operate

Realistic market opportunity: Defined by revenue potential in each market niche in which company hopes to compete

Market opportunity typically divided into smaller niches

Slide 2-31


4. Competitive Environment

Who else occupies your intended marketspace? Other companies selling similar products in the same

marketspace

Includes both direct and indirect competitors

Influenced by: Number and size of active competitors

Each competitors market share

Competitors profitability

Competitors pricing

Slide 2-32


5. Competitive Advantage

Achieved when firm:

Produces superior product or

Can bring product to market at lower price than competitors

Important concepts:

Asymmetries

First-mover advantage

Unfair competitive advantage

Leverage Slide 2-33


6. Market Strategy

How do you plan to promote your products or services to attract your target audience?

Details how a company intends to enter market and attract customers

Best business concepts will fail if not properly marketed to potential customers

Slide 2-34


7. Organizational Development

What types of organizational structures within the firm are necessary to carry out the business plan?

Describes how firm will organize work

Typically divided into functional departments

As company grows, hiring moves from generalists to specialists

Slide 2-35


8. Management Team

What kinds of experiences and background are important for the companys leaders to have? Employees are responsible for making the business model

work

Strong management team gives instant credibility to outside investors

Strong management team may not be able to salvage a weak business model, but should be able to change the model and redefine the business as it becomes necessary

Slide 2-36


Why do you think Webvan failed?

Why are more traditional grocery chains succeeding online today?

Why would an online customer pay the same price as in the store plus a delivery charge? Whats the benefit to the customer?

What are the important success factors for FreshDirect?

Do you think FreshDirect would work in your town?

Slide 2-37

Insight on Business

Online Grocers: Finding and Executing the Right Model

Class Discussion


Categorizing E-commerce Business Models

No one correct way

We categorize business models according to: E-commerce sector (B2C, B2B, C2C)

Type of e-commerce technology; i.e. m-commerce

Similar business models appear in more than one sector

Some companies use multiple business models; e.g. eBay

Slide 2-38


B2C Business Models: Portal

Search plus an integrated package of content and services

Revenue models:

Advertising, referral fees, transaction fees, subscriptions

Variations:

Horizontal / General

Vertical / Specialized (Vortal)

Pure Search

Slide 2-39


How many of you use Google versus Yahoo or Bing? Does the class differ from the overall Web population?

Why do you use a particular search engine?

Why is Google moving beyond search and advertising into applications?

How does Bing try to distinguish itself from Google? Do you think this strategy works?

Slide 2-40

Insight on Technology

Can Bing Bong Google? Class Discussion


B2C Models: E-tailer

Online version of traditional retailer

Revenue model: Sales

Variations: Virtual merchant

Bricks-and-clicks

Catalog merchant

Manufacturer-direct

Low barriers to entry

Slide 2-41


B2C Models: Content Provider

Digital content on the Web News, music, video

Revenue models: Subscription; pay per download (micropayment);

advertising; affiliate referral fees

Variations: Content owners

Syndication

Web aggregators

Slide 2-42


B2C Models: Transaction Broker

Process online transactions for consumers

Primary value propositionsaving time and money

Revenue model:

Transaction fees

Industries using this model:

Financial services

Travel services

Job placement services

Slide 2-43


B2C Models: Market Creator

Create digital environment where buyers and sellers can meet and transact

Examples:

Priceline

eBay

Revenue model: Transaction fees

Slide 2-44


B2C Models: Service Provider

Online services e.g. Google: Google Maps, Gmail, etc.

Value proposition Valuable, convenient, time-saving, low-cost alternatives to

traditional service providers

Revenue models: Sales of services, subscription fees, advertising, sales of

marketing data

Slide 2-45


B2C Models: Community Provider

Provide online environment (social network) where people with similar interests can transact, share content, and communicate

E.g. Facebook, MySpace, LinkedIn, Twitter

Revenue models: Typically hybrid, combining advertising,

subscriptions, sales, transaction fees, affiliate fees

Slide 2-46


B2B Business Models

Net marketplaces E-distributor E-procurement Exchange Industry consortium

Private industrial network Single firm Industry-wide

Slide 2-47


B2B Models: E-distributor

Version of retail and wholesale store, MRO goods and indirect goods

Owned by one company seeking to serve many customers

Revenue model: Sales of goods

Example: Grainger.com

Slide 2-48


B2B Models: E-procurement

Creates digital markets where participants transact for indirect goods B2B service providers, application service providers (ASPs)

Revenue model: Service fees, supply-chain management, fulfillment

services

Example: Ariba

Slide 2-49


B2B Models: Exchanges

Independently owned vertical digital marketplace for direct inputs

Revenue model: Transaction, commission fees

Create powerful competition between suppliers

Tend to force suppliers into powerful price competition; number of exchanges has dropped dramatically

Slide 2-50


B2B Models: Industry Consortia

Industry-owned vertical digital marketplace open to select suppliers

More successful than exchanges

Sponsored by powerful industry players

Strengthen traditional purchasing behavior

Revenue model: Transaction, commission fees

Example: Exostar

Slide 2-51


Private Industrial Networks

Designed to coordinate flow of communication among firms engaged in business together Electronic data interchange (EDI)

Single firm networks Most common form

Example: Wal-Marts network for suppliers

Industry-wide networks Often evolve out of industry associations

Example: Agentrics

Slide 2-52


Other E-commerce Business Models

Consumer-to-consumer (C2C) eBay, Craigslist

Peer-to-peer (P2P) The Pirate Bay, Cloudmark

M-commerce: Technology platform continues to evolve

iPhone, smartphones energizing interest in m-commerce apps

Slide 2-53


Insight on Society

Where R U? Not Here! Class Discussion

Why should you care if companies track your location via cell phone?

What is the opt-in principle and how does it protect privacy?

Should business firms be allowed to call cell phones with advertising messages based on location?

Slide 2-54


E-commerce Enablers: The Gold Rush Model

E-commerce infrastructure companies have profited the most:

Hardware, software, networking, security

E-commerce software systems, payment systems

Media solutions, performance enhancement

CRM software

Databases

Hosting services, etc.

Slide 2-55


How the Internet and the Web Change Business

E-commerce changes industry structure by changing:

Basis of competition among rivals

Barriers to entry

Threat of new substitute products

Strength of suppliers

Bargaining power of buyers

Slide 2-56


Industry Value Chains

Set of activities performed by suppliers, manufacturers, transporters, distributors, and retailers that transform raw inputs into final products and services

Internet reduces cost of information and other transactional costs

Leads to greater operational efficiencies, lowering cost, prices, adding value for customers

Slide 2-57


E-commerce and Industry Value Chains Figure 2.5, Page 105

Slide 2-58


Firm Value Chains

Activities that a firm engages in to create final products from raw inputs

Each step adds value

Effect of Internet: Increases operational efficiency

Enables product differentiation

Enables precise coordination of steps in chain

Slide 2-59


E-commerce and Firm Value Chains Figure 2.6, Page 106

Slide 2-60


Firm Value Webs

Networked business ecosystem

Uses Internet technology to coordinate the value chains of business partners

Coordinates a firms suppliers with its own production needs using an Internet-based

supply chain management system

Slide 2-61


Internet-Enabled Value Web Figure 2.7, Page 107

Slide 2-62


Business Strategy

Plan for achieving superior long-term returns on the capital invested in a business firm

Four generic strategies 1. Differentiation

2. Cost

3. Scope

4. Focus

Slide 2-63


Wikitude.me Class Discussion

Have you used Wikitude.me? If so, has it been useful; if not, is it a service that seems interesting? Why or why not?

Are there any privacy issues raised by geo-tagging?

What are the potential benefits to consumers and firms of mobile services? Are there any disadvantages?

What revenue models could work for providers of mobile services such as Layar?

Slide 3-64


The Internet: Technology Background

Internet

Interconnected network of thousands of networks and millions of computers

Links businesses, educational institutions, government agencies, and individuals

World Wide Web (Web)

One of the Internets most popular services

Provides access to billions, possibly trillions, of Web pages

Slide 3-65


The Evolution of the Internet 1961The Present

Innovation Phase, 1964 1974

Creation of fundamental building blocks

Institutionalization Phase, 1975 1995

Large institutions provide funding and legitimization

Commercialization Phase, 1995 present

Private corporations take over, expand Internet backbone and local service

Slide 3-66


The Internet: Key Technology Concepts

Defined by Federal Networking Commission as network that: Uses IP addressing

Supports TCP/IP

Provides services to users, in manner similar to telephone system

Three important concepts: Packet switching

TCP/IP communications protocol

Client/server computing

Slide 3-67


Packet Switching

Slices digital messages into packets

Sends packets along different communication paths as they become available

Reassembles packets once they arrive at destination

Uses routers Special purpose computers that interconnect the computer networks that

make up the Internet and route packets

Routing algorithms ensure packets take the best available path toward their destination

Less expensive, wasteful than circuit-switching

Slide 3-68


Packet Switching Figure 3.3, Page 132

Slide 3-69


TCP/IP

Transmission Control Protocol (TCP): Establishes connections among sending and receiving Web computers

Handles assembly of packets at point of transmission, and reassembly at receiving end

Internet Protocol (IP): Provides the Internets addressing scheme

Four TCP/IP layers Network Interface Layer

Internet Layer

Transport Layer

Application Layer

Slide 3-70


The TCP/IP Architecture and Protocol Suite

Figure 3.4,

Page 134

Slide 3-71


Internet (IP) Addresses

IPv4:

32-bit number

Expressed as series of four sets of separate numbers marked off by periods

201.61.186.227

Class C address: Network identified by first three sets, computer identified by last set

New version: IPv6 has 128-bit addresses, able to handle up

to 1 quadrillion addresses (IPv4 can only handle 4 billion)

Slide 3-72


Routing Internet Messages: TCP/IP and Packet Switching

Figure 3.5, Page 133

Slide 3-73


Domain Names, DNS, and URLs

Domain name IP address expressed in natural language

Domain name system (DNS) Allows numeric IP addresses to be expressed in natural

language

Uniform resource locator (URL) Address used by Web browser to identify location of

content on the Web

E.g. http://www.azimuth-interactive.com/flash_test

Slide 3-74


Client/Server Computing

Powerful personal computers (clients) connected in network with one or more servers

Servers perform common functions for the clients

Storing files, software applications, etc.

Slide 3-75


The New Client: The Emerging Mobile Platform

Within a few years, primary Internet access will be through:

Netbooks Designed to connect to wireless Internet

Under 2 lb, solid state memory, 8 displays

$200-400

Smartphones Disruptive technology: Processors, operating systems

Slide 3-76


Cloud Computing

Firms and individuals obtain computing power and software over Internet e.g., Google Apps

Fastest growing form of computing

Radically reduces costs of: Building and operating Web sites

Infrastructure, IT support

Hardware, software

Slide 3-77


Other Internet Protocols and Utility Programs

Internet protocols HTTP

E-mail: SMTP, POP3, IMAP

FTP, Telnet, SSL

Utility programs Ping

Tracert

Pathping

Slide 3-78


The Internet Today

Internet growth has boomed without disruption because of:

Client/server computing model

Hourglass, layered architecture Network Technology Substrate

Transport Services and Representation Standards

Middleware Services

Applications

Slide 3-79


The Hourglass Model of the Internet


Slide 3-80

SOURCE: Adapted from Computer

Science and Telecommunications

Board (CSTB), 2000.


Internet Network Architecture

Backbone: High-bandwidth fiber-optic cable networks

Private networks owned by a variety of NSPs

Bandwidth: 155 Mbps 2.5 Gbps

Built-in redundancy

IXPs: Hubs where backbones intersect with regional and local networks, and backbone owners connect with one another

CANs: LANs operating within a single organization that leases Internet access directly from regional or national carrier

Slide 3-81


Internet Network Architecture Figure 3.12, Page 145

Slide 3-82


Internet Service Providers (ISPs)

Provide lowest level of service to individuals, small businesses, some institutions

Types of service

Narrowband (dial-up)

Broadband

Digital Subscriber Line (DSL)

Cable modem

T1 and T3

Satellite

Slide 3-83


Intranets and Extranets

Intranet

TCP/IP network located within a single organization for communications and processing

Extranet

Formed when firms permit outsiders to access their internal TCP/IP networks

Slide 3-84


Who Governs the Internet?

Organizations that influence the Internet and monitor its operations include: Internet Architecture Board (IAB)

Internet Corporation for Assigned Names and Numbers (ICANN)

Internet Engineering Steering Group (IESG)

Internet Engineering Task Force (IETF)

Internet Society (ISOC)

World Wide Web Consortium (W3C)

International Telecommunications Union (ITU)

Slide 3-85


Insight on Society

Government Regulation and Surveillance of the Internet

Class Discussion

How is it possible for any government to control or censor the Web?

Does the Chinese government, or the U.S. government, have the right to censor content on the Web?

How should U.S. companies deal with governments that want to censor content?

What would happen to e-commerce if the existing Web split into a different Web for each country?

Slide 3-86


Internet II: The Future Infrastructure

Limitations of current Internet

Bandwidth limitations

Quality of service limitations Latency

Best effort QOS

Network architecture limitations

Language development limitations HTML

Wired Internet limitations

Slide 3-87


The Internet2 Project

Consortium of 200+ universities, government agencies, and private businesses collaborating to find ways to make the Internet more efficient, faster

Primary goals: Create leading edge very-high speed network for national

research community

Enable revolutionary Internet applications

Ensure rapid transfer of new network services and applications to broader Internet community

Slide 3-88


The Larger Internet II Technology Environment:

The First Mile and the Last Mile

GENI Initiative Proposed by NSF to develop new core

functionality for Internet

Most significant private initiatives Fiber optics

Mobile wireless Internet services

Slide 3-89


Fiber Optics and the Bandwidth Explosion in the First Mile

First mile: Backbone Internet services that carry bulk traffic over long distances

Older transmission lines being replaced with fiber-optic cable

Much of fiber-optic cable laid in United States is dark, but represents a vast digital highway that can be utilized in the future

Technology improvement has expanded capacity of existing fiber lines

Slide 3-90


The Last Mile: Mobile Wireless Internet Access

Last mile: From Internet backbone to users computer, cell phone, PDA, etc.

Two different basic types of wireless Internet access:

1. Telephone-based (mobile phones, smartphones)

2. Computer network-based

Slide 3-91


Telephone-based Wireless Internet Access

Competing 3G standards GSM: Used world-wide, AT&T, T-Mobile

CDMA: Used primarily in U.S.

Evolution: 2G cellular networks: relatively slow, circuit-switched

2.5G cellular networks: interim networks

3G cellular networks: next generation, packet-switched

3.5G (3G+)

4G (WiMax, LTE)

Slide 3-92


Wireless Local Area Networks (WLANs)

Wi-Fi High-speed, fixed broadband wireless LAN. Different versions for

home and business market. Limited range.

WiMax High-speed, medium range broadband wireless metropolitan area

network

Bluetooth Low-speed, short range connection

Ultra-Wideband (UWB) Low power, short-range high bandwidth network

Zigbee Short-range, low-power wireless network technology for remotely

controlling digital devices

Slide 3-93


Wi-Fi Networks Figure 3.16, Page 163

Slide 3-94


Benefits of Internet II Technologies

IP multicasting: Enables efficient delivery of data to many locations on a network

Latency solutions: diffserv (differentiated quality of service)

Assigns different levels of priority to packets depending on type of data being transmitted

Guaranteed service levels and lower error rates Ability to purchase the right to move data through network at

guaranteed speed in return for higher fee

Declining costs

Slide 3-95


Development of the Web

19891991: Web invented Tim Berners-Lee at CERN

HTML, HTTP, Web server, Web browser

1993: Mosaic Web browser w/ GUI Andreesen and others at NCSA

Runs on Windows, Macintosh, or Unix

1994: Netscape Navigator, first commercial Web browser Andreessen, Jim Clark

1995: Microsoft Internet Explorer

Slide 3-96


Hypertext

Text formatted with embedded links

Links connect documents to one another, and to other objects such as sound, video, or animation files

Uses Hypertext Transfer Protocol (HTTP) and URLs to locate resources on the Web

Example URL

http://megacorp.com/content/features/082602.html

Slide 3-97


Markup Languages

Generalized Markup Language (GML) 1960s

Standard Generalized Markup Language (SGML) GML variation, 1986

Hypertext Markup Language (HTML) Fixed set of pre-defined markup tags used to format text

Controls look and feel of Web pages

eXtensible Markup Language (XML) New markup language specification developed by W3C

Designed to describe data and information

Tags used are defined by user

Slide 3-98


Web Servers and Web Clients

Web server software: Enables a computer to deliver Web pages to clients on a network that

request this service by sending an HTTP request

Apache and Microsoft IIS

Basic capabilities: Security services, FTP, search engine, data capture

Web server Can refer to Web server software or physical server

Specialized servers: Database servers, ad servers, etc.

Web client: Any computing device attached to the Internet that is capable of

making HTTP requests and displaying HTML pages

Slide 3-99


Web Browsers

Primary purpose to display Web pages

Internet Explorer and Firefox dominate the market

Other browsers include: Netscape

Opera

Safari (for Apple)

Google Chrome

Slide 3-100


The Internet and Web: Features

Internet and Web features on which the foundations of e-commerce are built include: E-mail

Instant messaging

Search engines

Intelligent agents (bots)

Online forums and chat

Streaming media

Cookies

Slide 3-101


E-mail

Most used application of the Internet

Uses series of protocols for transferring messages with text and attachments (images, sound, video clips, etc.,) from one Internet user to another

Instant Messaging

Displays words typed on a computer almost instantly, and recipients can then respond immediately in the same way

Slide 3-102


Search Engines

Identify Web pages that match queries based on one or more techniques

Keyword indexes, page ranking

Also serve as: Shopping tools

Advertising vehicles (search engine marketing)

Tool within e-commerce sites

Outside of e-mail, most commonly used Internet activity

Slide 3-103


How Google Works

Slide 3-104



Intelligent Agents (Bots)

Software programs that gather and/or filter information on a specific topic and then provide a list of results Search bot

Shopping bot

Web monitoring bot

News bot

Chatter bot

Slide 3-105


Online Forums and Chat

Online forum: AKA message board, bulletin board, discussion board,

discussion group, board or forum

Web application that enables Internet users to communicate with each other, although not in real time

Members visit online forum to check for new posts

Online chat: Similar to IM, but for multiple users

Typically, users log into chat room

Slide 3-106


Streaming Media

Enables music, video and other large files to be sent to users in chunks so that when received and played, file comes through uninterrupted

Allows users to begin playing media files before file is fully downloaded

Slide 3-107


Cookies

Small text files deposited by Web site on users computer to store information about user, accessed when user next visits Web site

Can help personalize Web site experience

Can pose privacy threat

Slide 3-108


Web 2.0 Features and Services

Online Social Networks Services that support communication among

networks of friends, peers

Blogs

Personal Web page of chronological entries

Really Simple Syndication (RSS)

Program that allows users to have digital content automatically sent to their computers over the Internet

Slide 3-109



Podcasting

Audio presentation stored as an audio file and available for download from Web

Wikis

Allows user to easily add and edit content on Web page

Music and video services

Online video viewing

Digital video on demand Slide 3-110


Internet telephony (VOIP)

Uses Voice Over Internet Protocol (VOIP) and Internets packet-switched network to transmit voice and other forms of audio communication over the Internet

Internet television (IPTV)

Telepresence and video conferencing

Slide 3-111




Online software and Web services

Web apps, widgets and gadgets

Digital software libraries, ASPs, distributed storage

M-commerce applications

Beginning to take off

Slide 3-112



Apps for Everything: The App Ecosystem Class Discussion

What are apps and why are they so popular?

Do you use any apps regularly? Which ones, and what are their functions?

What are the benefits of apps? The weaknesses?

Are there any benefits/disadvantages to the proprietary nature of the Apple platform?

Slide 3-113


Tommy Hilfiger Right-Sizes Its Web Store Class Discussion

What are the factors you should take into account when sizing a Web sites infrastructure?

Why are peak times an important factor to consider?

What reasons were behind Hilfigers choice of ATG for its Web site solution?

How can operators of smaller sites deal with the right-sizing issue?

Slide 4-114


Building an E-commerce Site: A Systematic Approach

Most important management challenges:

1. Developing a clear understanding of business objectives

2. Knowing how to choose the right technology to achieve those objectives

Slide 4-115


Pieces of the Site-Building Puzzle

Main areas where you will need to make decisions:

Human resources and organizational capabilities

Creating team with skill set needed to build and manage a successful site

Hardware

Software

Telecommunications

Site design

Slide 4-116


The Systems Development Life Cycle

Methodology for understanding business objectives of a system and designing an appropriate solution

Five major steps:

1. Systems analysis/planning

2. Systems design

3. Building the system

4. Testing

5. Implementation

Slide 4-117


Web Site Systems Development Life Cycle


Slide 4-118


System Analysis/Planning

Business objectives:

List of capabilities you want your site to have

System functionalities:

List of information system capabilities needed to achieve business objectives

Information requirements:

Information elements that system must produce in order to achieve business objectives

Slide 4-119


Table 4.1, Page 210

Slide 4-120


Systems Design: Hardware and Software Platforms

System design specification:

Description of main components of a system and their relationship to one another

Two components of system design:

Logical design Data flow diagrams, processing functions, databases

Physical design Specifies actual physical, software components, models, etc.

Slide 4-121


Logical Design for a Simple Web Site

Figure 4.3 (a), Page 212

Slide 4-122


Physical Design for a Simple Web Site

Figure 4.3 (b), Page 212

Slide 4-123


Build/Host Your Own versus Outsourcing

Outsourcing: Hiring vendors to provide services involved in building site

Build own vs. outsourcing: Build your own requires team with diverse skill set; choice of software

tools; both risks and possible benefits

Host own vs. outsourcing Hosting: Hosting company responsible for ensuring site is accessible

24/7, for monthly fee

Co-location: Firm purchases or leases Web server (with control over its operation), but server is located at vendors facility

Slide 4-124


Choices in Building and Hosting

Figure 4.4 Page 213

Slide 4-125


Insight on Business

Curly Hair and MotorMouths: Getting Started on the Cheap

Class Discussion

How does a small, niche Web site become profitable?

What is the primary source of income for these kinds of sites?

What benefits are there to starting a business in a recession?

Slide 4-126


Testing, Implementation, and Maintenance

Testing

Unit testing

System testing

Acceptance testing

Implementation and maintenance:

Maintenance is ongoing

Maintenance costs: Parallel to development costs

Benchmarking

Slide 4-127


Factors in Web Site Optimization


Slide 4-128


Web Site Budgets

From $5,000 to millions of dollars/year

Components of budget:

System maintenance

System development

Content design & development

Hardware

Telecommunications

Software

Slide 4-129


Simple versus Multi-tiered Web Site Architecture

System architecture Arrangement of software, machinery, and tasks in an

information system needed to achieve a specific functionality

Two-tier Web server and database server

Multi-tier Web application servers

Backend, legacy databases

Slide 4-130


Two-Tier E-commerce Architecture

Figure 4.9(a), Page 222

Slide 4-131


Multi-tier E-commerce Architecture

Figure 4.9(b), Page 222

Slide 4-132


Web Server Software

Apache

Leading Web server software (54% of market)

Works only with UNIX, Linux OSs

Microsofts Internet Information Server (IIS)

Second major Web server software (25% of market)

Windows-based

Slide 4-133


Table 4.3, Page 224

Slide 4-134


Site Management Tools

Basic tools

Included in all Web servers

Verify that links on pages are still valid

Identify orphan files

Third-party software and services for advanced site management

Monitor customer purchases, marketing campaign effectiveness, etc.

e.g. WebTrends Analytics 9, Google Analytics Slide 4-135


Dynamic Page Generation Tools

Dynamic page generation: Contents of Web page stored as objects in database and

fetched when needed

Common tools: CGI, ASP, JSP

Advantages Lowers menu costs

Permits easy online market segmentation

Enables cost-free price discrimination

Enables Web content management system (WCMS)

Slide 4-136


Application Servers

Web application servers:

Provide specific business functionality required for a Web site

Type of middleware

Isolate business applications from Web servers and databases

Single-function applications increasingly being replaced by integrated software tools that combine all functionality needed for e-commerce site

Slide 4-137


Table 4.4, Page 228

Slide 4-138


E-commerce Merchant Server Software

Provides basic functionality for online sales

Online catalog

List of products available on Web site

Shopping cart

Allows shoppers to set aside, review, edit selections and then make purchase

Credit card processing

Typically works in conjunction with shopping cart

Verifies card and puts through credit to companys account at checkout

Slide 4-139


Merchant Server Software Packages

Integrated environment with most of functionality needed

Key factors in selecting a package Functionality

Support for different business models

Business process modeling tools

Visual site management and reporting

Performance and scalability

Connectivity to existing business systems

Compliance with standards

Global and multicultural capability

Local sales tax and shipping rules

Slide 4-140


Building Your Own E-commerce Site

Options for small firms

Hosted e-commerce sites, e.g. Yahoos Merchant Solutions

Site building tools

E-commerce templates

Open-source merchant server software

Enables you to build truly custom site

Requires programmer with expertise, time

Slide 4-141


Choosing the Hardware for an E-commerce Site

Hardware platform:

Underlying computing equipment that system uses to achieve e-commerce functionality

Objective:

Enough platform capacity to meet peak demand without wasting money

Important to understand the different factors that affect speed, capacity, and scalability of a site

Slide 4-142


Right-Sizing Your Hardware Platform: The Demand Side

Demand is the most important factor affecting speed of site

Factors in overall demand: Number of simultaneous users in peak periods

Nature of customer requests (user profile)

Type of content (dynamic versus static Web pages)

Required security

Number of items in inventory

Number of page requests

Speed of legacy applications

Slide 4-143


Table 4.7, Page 233 Slide 4-144


Degradation in Performance as Number of Users Increases-Resource Utilization

Figure 4.11 (a), Page 235

Slide 4-145

Copyright 2011 Pearson Education, Inc. Slide 4-146

Figure 4.11 (b), Page 235

Degradation in Performance as Number of Users Increases-Number of Connections


The Relationship of Bandwidth to Hits

Slide 4-147

SOURCE: IBM, 2003.



Right-Sizing Your Hardware Platform: The Supply Side

Scalability:

Ability of site to increase in size as demand warrants

Ways to scale hardware:

Vertically Increase processing power of individual components

Horizontally Employ multiple computers to share workload

Improve processing architecture

Slide 4-148


Table 4.8, Page 237

Slide 4-149


Vertically Scaling a System


Slide 4-150


Horizontally Scaling a System


Slide 4-151


Table 4.9, Page 240

Slide 4-152


Other E-Commerce Site Tools

Web site design: Basic business considerations

Enabling customers to find and buy what they need

Tools for Web site optimization

Search engine placement

Metatags, titles, content

Identify market niches, localize site

Expertise

Links

Search engine ads

Slide 4-153


E-commerce Web Site Features that Annoy Customers


Slide 4-154

SOURCE: Based on data from

Hostway Corporations survey, Consumers Pet Peeves about Commercial Web Sites, Hostway

Corporation, 2007.


Table 4.10, Page 242

Slide 4-155


Tools for Interactivity and Active Content

Web 2.0 design elements: Widgets, Mashups

CGI (Common Gateway Interface)

ASP (Active Server Pages)

Java, JSP, and JavaScript

ActiveX and VBScript

ColdFusion

Slide 4-156


Personalization Tools

Personalization

Ability to treat people based on personal qualities and prior history with site

Customization

Ability to change the product to better fit the needs of the customer

Tools to achieve personalization:

Cookies

Slide 4-157


The Information Policy Set

Privacy policy

Set of public statements declaring how site will treat customers personal information that is gathered by site

Accessibility rules

Set of design objectives that ensure disabled users can affectively access site

Slide 4-158


Insight on Society

Designing for Accessibility with Web 2.0 Class Discussion

Why might some merchants be reluctant to make their Web sites accessible to disabled Americans?

How can Web sites be made more accessible?

Should all Web sites be required by law to provide equivalent alternatives for visual and sound content?

Slide 4-159


Cyberwar: Mutually Assured Destruction 2.0

Class Discussion

What is the difference between hacking and cyberwar?

Why has cyberwar become more potentially devastating in the past decade?

What percentage of computers have been compromised by stealth malware programs?

Will a political solution to MAD 2.0 be effective enough?

Slide 5-160


The E-commerce Security Environment

Overall size and losses of cybercrime unclear

Reporting issues

2009 CSI survey: 49% of respondent firms detected security breach in last year

Of those that shared numbers, average loss $288,000

Underground economy marketplace:

Stolen information stored on underground economy servers

Slide 5-161


Types of Attacks Against Computer Systems (Cybercrime)

Slide 5-162


SOURCE: Based on data from

Computer Security Institute,

2009


What Is Good E-commerce Security?

To achieve highest degree of security

New technologies

Organizational policies and procedures

Industry standards and government laws

Other factors

Time value of money

Cost of security vs. potential loss

Security often breaks at weakest link

Slide 5-163


The E-commerce Security Environment


Slide 5-164


Table 5.2, Page 270

Slide 5-165


The Tension Between Security and Other Values

Ease of use:

The more security measures added, the more difficult a site is to use, and the slower it becomes

Public safety and criminal uses of the Internet

Use of technology by criminals to plan crimes or threaten nation-state

Slide 5-166


Security Threats in the E-commerce Environment

Three key points of vulnerability:

1. Internet communications channels

2. Server level

3. Client level

Slide 5-167


A Typical E-commerce Transaction


Slide 5-168

SOURCE: Boncella, 2000.


Vulnerable Points in an E-commerce Environment


Slide 5-169

SOURCE: Boncella, 2000.


Most Common Security Threats in the E-commerce Environment

Malicious code Viruses

Worms

Trojan horses

Bots, botnets

Unwanted programs Browser parasites

Adware

Spyware

Slide 5-170


Most Common Security Threats (cont.)

Phishing Deceptive online attempt to obtain confidential information

Social engineering, e-mail scams, spoofing legitimate Web sites

Use of information to commit fraudulent acts (access checking accounts), steal identity

Hacking and cybervandalism Hackers vs. crackers

Cybervandalism: Intentionally disrupting, defacing, destroying Web site

Types of hackers: White hats, black hats, grey hats

Slide 5-171



Credit card fraud/theft Hackers target merchant servers; use data to establish credit under

false identity

Spoofing

Pharming

Spam/junk Web sites

Denial of service (DoS) attack Hackers flood site with useless traffic to overwhelm network

Distributed denial of service (DDoS) attack

Slide 5-172



Sniffing

Eavesdropping program that monitors information traveling over a network

Insider jobs

Single largest financial threat

Poorly designed server and client software

Mobile platform threats

Same risks as any Internet device

Malware, botnets, vishing/smishing

Slide 5-173


Technology Solutions

Protecting Internet communications (encryption)

Securing channels of communication (SSL, S-HTTP, VPNs)

Protecting networks (firewalls)

Protecting servers and clients

Slide 5-174


Tools Available to Achieve Site Security


Slide 5-175


Encryption

Encryption Transforms data into cipher text readable only by

sender and receiver

Secures stored information and information transmission

Provides 4 of 6 key dimensions of e-commerce security:

1. Message integrity

2. Nonrepudiation

3. Authentication

4. Confidentiality

Slide 5-176


Symmetric Key Encryption

Sender and receiver use same digital key to encrypt and decrypt message

Requires different set of keys for each transaction

Strength of encryption

Length of binary key used to encrypt data

Advanced Encryption Standard (AES)

Most widely used symmetric key encryption

Uses 128-, 192-, and 256-bit encryption keys

Other standards use keys with up to 2,048 bits Slide 5-177


Public Key Encryption

Uses two mathematically related digital keys

Public key (widely disseminated)

Private key (kept secret by owner)

Both keys used to encrypt and decrypt message

Once key used to encrypt message, same key cannot be used to decrypt message

Sender uses recipients public key to encrypt message; recipient uses his/her private key to decrypt it

Slide 5-178


Public Key Cryptography A Simple Case


Slide 5-179


Public Key Encryption using Digital Signatures and Hash Digests

Hash function: Mathematical algorithm that produces fixed-length number called

message or hash digest

Hash digest of message sent to recipient along with message to verify integrity

Hash digest and message encrypted with recipients public key

Entire cipher text then encrypted with recipients private key creating digital signature for authenticity, nonrepudiation

Slide 5-180


Public Key Cryptography with Digital Signatures


Slide 5-181


Digital Envelopes

Address weaknesses of:

Public key encryption

Computationally slow, decreased transmission speed, increased processing time

Symmetric key encryption

Insecure transmission lines

Uses symmetric key encryption to encrypt document

Uses public key encryption to encrypt and send symmetric key

Slide 5-182


Creating a Digital Envelope


Slide 5-183


Digital Certificates and Public Key Infrastructure (PKI)

Digital certificate includes: Name of subject/company

Subjects public key

Digital certificate serial number

Expiration date, issuance date

Digital signature of CA

Public Key Infrastructure (PKI): CAs and digital certificate procedures

PGP

Slide 5-184


Digital Certificates and Certification Authorities


Slide 5-185


Limits to Encryption Solutions

Doesnt protect storage of private key

PKI not effective against insiders, employees

Protection of private keys by individuals may be haphazard

No guarantee that verifying computer of merchant is secure

CAs are unregulated, self-selecting organizations

Slide 5-186


Insight on Society

Web Dogs and Anonymity Class Discussion

What are some of the benefits of continuing the anonymity of the Internet?

What are the disadvantages of an identity system?

Are there advantages to an identity system beyond security?

Who should control a central identity system?

Slide 5-187


Securing Channels of Communication

Secure Sockets Layer (SSL): Establishes a secure, negotiated client-server session

in which URL of requested document, along with contents, is encrypted

S-HTTP: Provides a secure message-oriented communications

protocol designed for use in conjunction with HTTP

Virtual Private Network (VPN): Allows remote users to securely access internal

network via the Internet, using Point-to-Point Tunneling Protocol (PPTP)

Slide 5-188


Secure Negotiated Sessions Using SSL


Slide 5-189


Protecting Networks

Firewall

Hardware or software

Uses security policy to filter packets

Two main methods:

1. Packet filters

2. Application gateways

Proxy servers (proxies)

Software servers that handle all communications originating from or being sent to the Internet

Slide 5-190


Firewalls and Proxy Servers


Slide 5-191


Protecting Servers and Clients

Operating system security enhancements

Upgrades, patches

Anti-virus software:

Easiest and least expensive way to prevent threats to system integrity

Requires daily updates

Slide 5-192


Management Policies, Business Procedures, and Public Laws

U.S. firms and organizations spend 12% of IT budget on security hardware, software, services ($120 billion in 2009)

Managing risk includes

Technology

Effective management policies

Public laws and active enforcement

Slide 5-193


A Security Plan: Management Policies

Risk assessment

Security policy

Implementation plan

Security organization

Access controls

Authentication procedures, inc. biometrics

Authorization policies, authorization management systems

Security audit

Slide 5-194


Developing an E-commerce Security Plan

Slide 5-195



The Role of Laws and Public Policy

Laws that give authorities tools for identifying, tracing, prosecuting cybercriminals: National Information Infrastructure Protection Act of 1996

USA Patriot Act

Homeland Security Act

Private and private-public cooperation CERT Coordination Center

US-CERT

Government policies and controls on encryption software

OECD guidelines

Slide 5-196



Think Your Smartphone Is Secure? Class Discussion

What types of threats do smartphones face?

Are there any particular vulnerabilities to this type of device?

What did Nicolas Seriots Spyphone prove?

Are apps more or less likely to be subject to threats than traditional PC software programs?

Slide 5-197


Types of Payment Systems

Cash Most common form of payment in terms of number of

transactions Instantly convertible into other forms of value without

intermediation

Checking Transfer Second most common payment form in U.S. in terms of

number of transactions

Credit Card Credit card associations Issuing banks Processing centers

Slide 5-198


Types of Payment Systems (cont.)

Stored Value

Funds deposited into account, from which funds are paid out or withdrawn as needed, e.g. debit cards, gift certificates

Peer-to-peer payment systems

Accumulating Balance

Accounts that accumulate expenditures and to which consumers make period payments

e.g. Utility, phone, American Express accounts

Slide 5-199


Table 5.6, Page 312

Slide 5-200


E-commerce Payment Systems

Credit cards 55 % of online payments in 2009 (U.S.)

Debit cards 28 % online payments in 2009 (U.S.)

Limitations of online credit card payment Security

Cost

Social equity

Slide 5-201


How an Online Credit Transaction Works


Slide 5-202


E-commerce Payment Systems (cont.)

Digital wallets Emulates functionality of wallet by authenticating consumer, storing

and transferring value, and securing payment process from consumer to merchant

Early efforts to popularize failed

Newest effort: Google Checkout

Digital cash Value storage and exchange using tokens

Most early examples have disappeared; protocols and practices too complex

Slide 5-203


E-commerce Payment Systems (cont.)

Online stored value systems Based on value stored in a consumers bank, checking, or

credit card account

PayPal, smart cards

Digital accumulated balance payment Users accumulate a debit balance for which they are billed

at the end of the month

Digital checking: Extends functionality of existing checking accounts for use

online

Slide 5-204


Mobile Payment Systems

Use of mobile handsets as payment devices well-established in Europe, Japan, South Korea

Japanese mobile payment systems

E-money (stored value)

Mobile debit cards

Mobile credit cards

Not as well established yet in U.S

Majority of purchases are digital content for use on cell phone

Slide 5-205


Insight on Business

Mobile Payments Future: Wavepayme, Textpayme

Group Discussion

What technologies make mobile payment more feasible now than in the past?

Describe some new experiments that are helping to develop mobile payment systems.

How has PayPal responded?

Why havent mobile payment systems grown faster? What factors will spur their growth?

Slide 5-206


Electronic Billing Presentment and Payment (EBPP)

Online payment systems for monthly bills

65% + of households in 2010 used some EBPP; expected to continue to grow

Two competing EBPP business models: Biller-direct (dominant model)

Consolidator

Both models are supported by EBPP infrastructure providers

Slide 5-207


Netflix Strengthens and Defends Its Brand

Class Discussion

What was Netflixs first business model? Why did this model not work and what new model did it develop?

Why is Netflix attractive to customers?

How does Netflix distribute its videos?

What is Netflixs recommender system?

How does Netflix use data mining?

Is video on demand a threat to Netflix?

Slide 6-208


Consumers Online: The Internet Audience and Consumer Behavior

Around 70% (82 million) U.S. households have Internet access in 2010

Growth rate has slowed

Intensity and scope of use both increasing

Some demographic groups have much higher percentages of online usage than others Gender, age, ethnicity, community type, income, education

Slide 6-209


The Internet Audience and Consumer Behavior (contd)

Broadband audience vs. dial-up audience

Purchasing behavior affected by neighborhood

Lifestyle and sociological impacts Use of Internet by children, teens

Use of Internet as substitute for other social activities

Media choices Traditional media competes with Internet for attention

Slide 6-210


Consumer Behavior Models

Study of consumer behavior

Social science

Attempts to explain what consumers purchase and where, when, how much and why they buy

Consumer behavior models

Predict wide range of consumer decisions

Based on background demographic factors and other intervening, more immediate variables

Slide 6-211


A General Model of Consumer Behavior


Slide 6-212

SOURCE: Adapted from Kotler and Armstrong, 2009.


Background Demographic Factors

Culture: Broadest impact

Subculture (ethnicity, age, lifestyle, geography)

Social

Reference groups Direct reference groups

Indirect reference groups

Opinion leaders (viral influencers)

Lifestyle groups

Psychological

Psychological profiles

Slide 6-213


The Online Purchasing Decision

Psychographic research Combines demographic and psychological data

Divides market into groups based on social class, lifestyle, and/or personality characteristics

Five stages in the consumer decision process: 1. Awareness of need

2. Search for more information

3. Evaluation of alternatives

4. Actual purchase decision

5. Post-purchase contact with firm

Slide 6-214


The Consumer Decision Process and Supporting Communications


Slide 6-215


A Model of Online Consumer Behavior

Decision process similar for online and offline behavior

General online behavior model Consumer skills

Product characteristics

Attitudes toward online purchasing

Perceptions about control over Web environment

Web site features

Clickstream behavior: Transaction log for consumer from search engine to purchase

Slide 6-216



Slide 6-217




Clickstream factors include: Number of days since last visit

Speed of clickstream behavior

Number of products viewed during last visit

Number of pages viewed

Supplying personal information

Number of days since last purchase

Number of past purchases

Clickstream marketing

Slide 6-218


Shoppers: Browsers and Buyers

Shoppers: 87% of Internet users

72% buyers

16% browsers (purchase offline)

One-third offline retail purchases influenced by online activities

Online traffic also influenced by offline brands and shopping

E-commerce and traditional commerce are coupled: part of a continuum of consuming behavior

Slide 6-219


Online Shoppers and Buyers


Slide 6-220

SOURCE: Based on data from eMarketer, Inc., 2010b


What Consumers Shop for and Buy Online

Big ticket items ($500 plus)

Travel, computer hardware, consumer electronics

Expanding

Consumers more confident in purchasing costlier items

Small ticket items ($100 or less)

Apparel, books, office supplies, software, etc.

Sold by first movers on Web Physically small items

High margin items

Broad selection of products available

Slide 6-221


What Consumers Buy Online


Slide 6-222

SOURCES: Based on data from eMarketer, Inc., 2010b; Internet Retailer, 2010.


Intentional Acts: How Shoppers Find Vendors Online

Search engines (59%)

Coupon Web sites (29%)

Comparison shopping sites (27%)

E-mail newsletters (25%)

Online shoppers are highly intentional, looking for specific products, companies, services

Slide 6-223


Table 6.6, Page 362

Slide 6-224

SOURCES: Based on data from eMarketer, Inc., 2010c


Trust, Utility, and Opportunism in Online Markets

Two most important factors shaping decision to purchase online:

Utility:

Better prices, convenience, speed

Trust:

Asymmetry of information can lead to opportunistic behavior by sellers

Sellers can develop trust by building strong reputations for honesty, fairness, delivery

Slide 6-225


Basic Marketing Concepts

Marketing Strategies and actions to establish relationship

with consumer and encourage purchases of products and services

Addresses competitive situation of industries and firms

Seeks to create unique, highly differentiated products or services that are produced or supplied by one trusted firm Unmatchable feature set

Avoidance of becoming commodity

Slide 6-226


Feature Sets

Three levels of product or service

1. Core product e.g. cell phone

2. Actual product Characteristics that deliver core benefits

e.g. wide screen that connects to Internet

3. Augmented product Additional benefits

Basis for building the products brand

e.g. product warranty

Slide 6-227


Feature Set


Slide 6-228


Products, Brands and the Branding Process

Brand: Expectations consumers have when consuming, or

thinking about consuming, a specific product Most important expectations: Quality, reliability,

consistency, trust, affection, loyalty, reputation

Branding: Process of brand creation

Closed loop marketing

Brand strategy

Brand equity

Slide 6-229


Marketing Activities: From Products to Brands


Slide 6-230


Segmenting, Targeting, and Positioning

Major ways used to segment, target customers

1. Behavioral

2. Demographic

3. Psychographic

4. Technical

5. Contextual

6. Search

Within segment, product is positioned and branded as a unique, high-value product, especially suited to needs of segment customers

Slide 6-231


Are Brands Rational?

For consumers, a qualified yes: Brands introduce market efficiency by reducing search and

decision-making costs

For business firms, a definite yes: A major source of revenue

Lower customer acquisition cost

Increased customer retention

Successful brand constitutes a long-lasting (though not necessarily permanent) unfair competitive advantage

Slide 6-232


Can Brands Survive the Internet? Brands and Price Dispersion

Early postulation: Law of One Price; end of brands

Instead:

Consumers still pay premium prices for differentiated products

E-commerce firms rely heavily on brands to attract customers and charge premium prices

Substantial price dispersion

Large differences in price sensitivity for same product

Library effect

Slide 6-233


The Revolution in Internet Marketing Technologies

Three broad impacts: Scope of marketing communications broadened

Richness of marketing communications increased

Information intensity of marketplace expanded

Internet marketing technologies: Web transaction logs

Cookies and Web bugs

Databases, data warehouses, data mining

Advertising networks

Customer relationship management systems

Slide 6-234


Web Transaction Logs

Built into Web server software

Record user activity at Web site

Webtrends: Leading log analysis tool

Provides much marketing data, especially combined with:

Registration forms

Shopping cart database

Answers questions such as:

What are major patterns of interest and purchase?

After home page, where do users go first? Second?

Slide 6-235


Cookies and Web Bugs

Cookies: Small text file Web sites place on visitors PC every time

they visit, as specific pages are accessed

Provide Web marketers with very quick means of identifying customer and understanding prior behavior

Flash cookies

Web bugs: Tiny (1 pixel) graphics embedded in e-mail and Web sites

Used to automatically transmit information about user and page being viewed to monitoring server

Slide 6-236


Insight on Society

Every Move You Make, Every Click You Make, Well Be Tracking You

Class Discussion

Are Web bugs innocuous? Or are they an invasion of personal privacy?

Do you think your Web browsing should be known to marketers?

What are the Privacy Foundation guidelines for Web bugs?

Should online shopping be allowed to be a private activity?

Slide 6-237


Databases

Database: Stores records and attributes

Database management system (DBMS):

Software used to create, maintain, and access databases

SQL (Structured Query Language):

Industry-standard database query and manipulation language used in a relational database

Relational database:

Represents data as two-dimensional tables with records organized in rows and attributes in columns; data within different tables can be flexibly related as long as the tables share a common data element

Slide 6-238


A Relational Database View of E-commerce Customers


Slide 6-239


Data Warehouses and Data Mining

Data warehouse:

Collects firms transactional and customer data in single location for offline analysis by marketers and site managers

Data mining:

Analytical techniques to find patterns in data, model behavior of customers, develop customer profiles

Query-driven data mining

Model-driven data mining

Rule-based data mining

Collaborative filtering

Slide 6-240


Data Mining and Personalization


Slide 6-241

SOURCE: Adomavicius and Tuzhilin, 2001b 2001 IEEE.



The Long Tail: Big Hits and Big Misses Class Discussion

What are recommender systems? Give an example you have used.

What is the Long Tail and how do recommender systems support sales of items in the Long Tail?

How can human editors, including consumers, make recommender systems more helpful?

Slide 6-242


Customer Relationship Management (CRM) Systems

Record all contact that customer has with firm

Generates customer profile available to everyone in firm with need to know the customer

Customer profiles can contain: Map of the customers relationship with the firm

Product and usage summary data

Demographic and psychographic data

Profitability measures

Contact history

Marketing and sales information

Slide 6-243


A Customer Relationship Management System


Slide 6-244

SOURCE: Compaq, 1998


Market Entry Strategies

Slide 6-245



Establishing the Customer Relationship

Advertising Networks

Banner advertisements

Ad server selects appropriate banner ad based on cookies, Web bugs, backend user profile databases

Permission marketing

Affiliate marketing

Slide 6-246


How an Advertising Network such as DoubleClick Works


Slide 6-247


Establishing the Customer Relationship (contd)

Viral marketing

Getting customers to pass along companys marketing message to friends, family, and colleagues

Blog marketing

Using blogs to market goods through commentary and advertising

Social network marketing, social shopping

Mobile marketing

Slide 6-248


Insight on Business

Social Network Marketing: Lets Buy Together Class Discussion

Why do social networks represent such a promising opportunity for marketers?

What are some of the new types of marketing that social networks have spawned?

What are some of the risks of social network marketing? What makes it dangerous?

Have you ever responded to marketing messages on Facebook or another network?

Slide 6-249


Establishing the Customer Relationship (contd)

Wisdom of crowds (Surowiecki, 2004) Large aggregates produce better estimates and judgments

Examples: Prediction markets

Folksonomies

pptch1-7

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